Markets continue to suffer steep losses

Global Markets

The global sentiment remains weak and equity markets continue to take a hit with most of the major markets over the previous day suffering losses. Even on Tuesday, Asian equities are in red territory and this negative sentiment could continue into both the European and American sessions later today. There’s a great deal of investor concerns in the markets right now, with slowing growth in China and uncertainty over when the Federal Reserve will begin raising US interest rates dragging on investor sentiment. On top of this, commodity prices remain depressed and there are continual concerns over the pace of economic recovery in both Japan and Europe.

While the Dollar received a boost after last week’s US GDP highlighted the strength of the US economy, the USD became exposed to weakness against its trading partners yesterday following what could be perceived as a dovish speech by Federal Reserve Bank of Chicago President Charles Evens. Although it was highlighted during his speech that labour market conditions had improved, the lack of confidence he expressed about the bank reaching its 2% inflation target led to concerns resurfacing that the Federal Reserve might not be raising US interest rates this year after all. The complete lack of clarity over when the Federal Reserve will begin raising US interest rates is now weighing on investor sentiment towards the US markets, which has contributed behind the S&P 500 closing over 2.5% lower yesterday.

There’s still further risks for the markets ahead later this week with crucial economic data released by both China and the United States. If the China Manufacturing PMI falls below what are already low expectations (49.7) then this is not only going to reconfirm that a decline in economic momentum is a continual theme for the China economy, but further concerns that China is entering a deeper economic downturn than what was previously anticipated. This would particularly weigh on the investor sentiment towards the emerging markets, which are already having to get to grips with continually depressed commodity prices which is creating downside pressures for their economies, even before an expected decline in exports to China.

I am really keeping a close eye on the oil markets at the moment, and I do think we are at risk to falling towards at least one further milestone low before the year is over. While the aggressive oversupply in the markets has been a continual weight on investor sentiment for at least one year now, I do think these elevated anxieties over the pace of the global economy will lead to concerns that there will be less demand for the commodity. Reduced demand could be the next catalyst for a heavy sell-off and this would not only pressure the oil and commodity markets, but expose further weakness to the currencies that have economies dependent on commodity exports.